Got Falling Wages?

For this listener question, I'm going to need your help. Alex writes:

The Washington Post has an article today about the continued drop in the CPI [Consumer Price Index]. 1.7% since the end of October. They cite a lowered cost of fuel for this. They also said that inflation was flat at 0.

. . .

Is this the new sign that we have entered a period of deflation?

I caught up with Ian Shepherdson, the chief U.S. economist for High Frequency Economics, who told me that he doesn't think we've begun true deflation yet.

Shepherdson says that if you take oil prices out of the equation, overall prices haven't yet declined a great deal. What he calls core prices — for food and clothing, etc. — have stayed steady. He's not at all sure how long that will last, but for now, the decline in prices isn't nearly broad-based enough for him to say deflation has arrived.

However: Shepherdson is watching for another key ingredient in deflation — falling wages. Overall wages are continuing to grow, he says, by something like 3 percent a year. That could change. "Given that the unemployment is rocketing and labor is becoming much cheaper already, over the next year or so we we could easily have negative wages and negative core CPI," he says. "It's not my base case. It's not the most likely outcome. But it's a lot more likely than I would ever like it to be."

This is where you come in. If you're seeing falling wages — meaning you or your employees are getting less money for the same old work, let us know, in the comments or over e-mail. You could be the first to notice.

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